WA gas blast may cost hundreds of millions

5 June 2008 — 3:31pm

Mining companies stand to lose hundreds of millions of dollars as a result of the shutdown of the Varanus Island gas plant in Western Australia, a stockbroking analyst says.

DJ Carmichael head of research Paul Adams said the fire that broke out at the North West Shelf plant on Tuesday near Karratha will hit the balance sheets of some of Australia's biggest miners, including BHP-Billiton, Newmont and Alcoa.

Plant owner Apache Energy today said the fire at the plant had been extinguished and that damage was being assessed to piping infrastructure and control equipment, but could not indicate how long the shutdown would take.

Apache managing director Tim Wall said he expected to gain a clearer picture of the extent of the damage and the effect on supplies in coming days. The Varanus Island plant supplies 30% of Western Australia's needs, mainly for industrial use.

Mr Adams said Newmont Mining was among the miners now forced to power their operations with expensive diesel, a short-term solution.

Dow Jones reported today that Alcoa, which obtains a quarter of its energy supplies from Apache, has already been hit to the tune of at least $10 million, while it sought alternative energy supplies.

Mr Adams said Newmont and Alcoa were among miners trying to keep diesel use to a minimum while they sought alternative power sources.

Even spare supplies of diesel in industrial quantaties were likely to run short very quickly.

Mr Adams said some operations, like Minara Resources' Murrin Murrin nickel mine, were using the downtime to work on plant maintenance.

But the shortage of supplies could force companies to temporarily shut their operations and make staff take accrued annual leave, keeping only a skeleton crew on site.

Mr Adams said it was hard to estimate the cost to affected mining operations until Apache completed its investigation and estimated how long the shutdown would last.

He said it would cost the state's mining industry hundreds of millions of dollars. I f damage to the Apache plant was significant, the incident had the potential to ``hit WA's mining industry hard'', Mr Adams said.